What Happens When The Minimum Wage Is Raised

The effects of raising minimum wages are controversial; some even say it's a problem. There is a widespread perception that raising the minimum wage will cause widespread job losses, because companies everywhere will have to let certain people go in order to compensate for having to supply other employees with higher wages.

A number of individual cities throughout the United States have passed laws that involved raising the minimum wage, so there is now a respectable level of data on the subject. According to what many cities have experienced, increasing the minimum wage does not cause mass job losses, depending on the size of the minimum wage increase.

San Francisco once had a minimum wage of $6.75, and its minimum hourly wage was gradually raised to $10.74. Raising the minimum wage in this manner did undeniably have effects on businesses, but it did not influence employment trends much. Businesses retained employees for much longer under this new system, which helped them save money.

The job performance of the workers improved once their wages were raised, thus compensating for some of the initial revenue that the businesses lost. Some businesses had to charge customers more, but only slightly more. At least for minimum wage increases on this level, the situation largely seemed to work itself out when it came to employment figures.

When Santa Fe tried something similar, employment trends improved somewhat, countering the idea that job loss is inevitable with minimum wage increases. The change did hurt the success of some businesses and it did cause others to shut down altogether. However, the loss of businesses did not occur on a massive level, and the workers themselves praised the change in the law.

The forces that cause businesses to shut down are complicated, and it is unknown whether or not there was a direct link between the increase in the minimum wage laws and the given businesses shutting down.

Raising minimum wages may effect employment in other ways, however. People that are just entering the job market may lose out if minimum wages are increased. New workers depend on entry-level positions, and businesses may not offer as many entry-level positions if they are required to provide higher minimum wages up front.

The effects of raising minimum wages to around $15 hourly are still largely unstudied. It is possible that different cities that try raising their minimum wages will have different results, since the effects of raising the minimum wage have not always been consistent. Many of the long-term effects of increasing the minimum wage remain to be seen.

Copyright 2014. This site no longer affiliated with Joe Kallas.